Merchant-Banking Services SEBI (Merchant Banker) Regulations, 1992, defines ‘merchant banker’ as: any person engaged in issue mgt. selling, buying or subscribing to securities acting as manager, consultant or advisor for such services. mandatory in case of public issues, right issues, open offers or buy-back. cannot carry any fund based activity.
SEBI (Merchant Banker) Regulation, 1992The applicant should comply with following: a body corporate other than NBFC under Clause (f) of Section 45-1 of RBI Act1934. not to hold or accept public deposit. adequate office space, equipments and manpower to perform duties. employ min. two persons having experience.
SEBI (Merchant Banker) Regulation, 1992 adequate capital not less than Rs.5 crores. not involved in any litigation connected to securities affecting business. not involved in any offence of moral turpitude or guilty in any economic offence. Prof. qualification from institute recognized by govt. in finance, law or business mgt.
Certificate of Registration granted under Regulation 8 and renewal under Regulation 9. valid up to 3 years from date of registration. after 30 June, 1998, a bank or public financial company can carry out business only in securities market.
FunctionsThe lead manager performs following: pricing the issue. timing the issue. marketing the issue. preparing the offer document. listing & allotment/refund.
Number No. of Merchant Size of Issue Bankers Less than Rs.50 crores TwoRs.50 crores > Rs.100 crores ThreeRs.100 crores > Rs. 200 crores FourRs.200 crores > Rs.400 crores Five Above Rs.400 crores Agreed by Board
Responsibilities No lead manager shall agree to manage the issue: unless his responsibilities i.e. disclosures, allotment and refund are defined clearly & statement furnished 1 month before the issue. made by any body corporate, if it is an associate of lead merchant banker. Information to Board to be submitted within 15 days after entering into any such transaction.
Disclosures to SEBIFollowing information to be disclosed: responsibilities with regard to mgt. of issue. change in information previously furnished. names of body corporate associated in present or past. if any breach in regard to capital adequacy. any other activity as manager, underwriter, consultant or advisor.
Compliance Officer every merchant banker to appoint compliance officer. Duties of compliance officer: monitor & report to Board any non-compliance of Act, rules & regulations, notifications, guidelines or instructions issued. deficiencies do not recur.
Pre-Issue Obligations Documents to be submitted along with Offer Document by the Lead Manager MOU Inter-se Allocation of Responsibilities Due-Diligence Certificate Certificates signed by Company Secretary or Chartered Accountant
Pre-Issue Obligations List of Promoters’ Group & other details promoter individual shareholding. stock exchanges on which securities proposed to be listed, Permanent A/c No., Bank A/c No. & passport No. of promoters. Undertaking to SEBI by ‘promoter’, ‘promoter group’ & relatives of ‘promoters’ b/w date of filling offer documents & date of closure of issue.
Pre-Issue Obligations Appointment of Intermediaries Merchant Banker not lead manage issue: If he is a promoter or a director of issuer company. can manage if securities listed/proposed to be listed on OTCEI. Merchant Banker lead manage issue: associate of issuer company. involved in marketing of issue.
Pre-Issue Obligations Underwriting The lead merchant banker shall satisfy themselves about the ability of the underwriters to discharge their underwiting obligations.The lead merchant banker shall:1.Incorporate a statement in the offer document to the effect that in the opinion of the lead merchant banker, the underwriters’s assets are adequate to meet their underwriting obligations.
2. Obtain the underwriters written consent before including their names as underwriters in the final offer document.In respect of every underwritten issue, the lead merchantbanker shall undertake a minimum underwriting obligationof 5% of the total underwriting commitment or Rs. 25 lakhs ,whichever is less. Offer document to be made publicthe draft offer document filed with the SEBI shall be madepublic for a period of 21 days, from the date of filing theoffer document with the SEBI.The lead merchant banker shall :1. While filing the draft- offer document with the board canalso file the draft offer document with the stock exchange.
2. While filing the copy of the red-herring prospectus, prospectus or letter of offer , as the case may be , with the board, can also file the copy of red herring prospectus , prospectus with the stock exchange.3. Make copies of the draft offer-document available to the public and final-offer documents on the websites of all the lead managers associated with the issue No-complaint certificate After a period of 21 days from the date the draft offer document was made public , the lead merchant banker shall file a statement with the board:1. Giving a list of complaints received by it.2. A statement whether it is proposed to amend or not
Mandatory collection centres the minimum number of collection centres for an issue of capital shall be:• The four metropolitan centres situated at Mumbai, Delhi , Calcutta and chennai.• All such centres where stock exchange are located in the region in which the registered office of the company is situated.• The regional division of collection centres.
Authorised collection agents The issuer company can appoint authorizedcollection agents in consultation with the leadmerchant banker, subject to necessary disclosuresincluding the names and addresses of such agentsare made in the offer document. The collection agents may collect such applications ,as are accompanied by payment of applicationmonies paid by cheque, drafts.The application forms, along with the duly reconciledschedules, shall be forwarded by the collection agent to the registrar issue
Ageements with depositorsthe lead manager shall ensure the issuer company hasentered into agreements with all the depositories fordematerialisation of securities. He shall also ensure that anoption be given to the investors to receive the allotment ofsecurities in a dematerialised form, through any of thedepositors .
POST-ISSUE OBLIGATIONS• Post issue monitoring reports The post issue lead merchant banker shall ensure the submission of the post issue monitoring reports Due diligence certificate to be submitted with the final post issue monitoring report. The post issue lead merchant banker shall file a due diligence certificate in the format specified along with the final post issue monitoring report
Redressal of the investor grievancesThe post-issue lead merchant banker shall activelyassociate himself with post-issue activities namelyallotment, refund and despatch and shall regularlymonitor redressal of investor. Coordination with the intermediariesThe post-issue lead merchant banker shall maintainclose coordination with the Registrars to the Issue.Any act of omission or commission on the part ofintermediaries shall be reported to the Board
Underwriters• the lead merchant banker shall satisfy himself that the issue is fully subscribed before announcing closure of the issue• the lead merchant banker shall ensure that the underwriters honour their commitment within 60 days from the date of closure of the issue.• 3. The lead merchant banker shall furnish informationin respect of underwriters who failed to meet their underwriting devolvements
Bank to issue• The post-issue lead merchant banker shall ensure that moneys received pursuant to the issue are kept in a separate bank (i.e Bankers to issue )as per the provisions of section 73(3) of the companies act, 1956. Post issue advertisements• Post- issue lead merchant banker shall ensure that in all issues, advertisement giving details relating to oversubscription, basis on allotment, number, value and percentage of application received etc. is released within 10 days.
Basis of allotmentIn a public issue of securities , the managing directoralong with the lead merchant banker and the registrarto an issue, shall ensure that basis of allotments isfinalised in a fair and proper manner Proportionate-allotment Procedure an allotment shall be made on a proportionate basiswithin the specified categories . The proportionateallotments of securities in an issue, that isoversubscribed shall be subject to reservation for theretail individual investors as described in thefollowing:
1. A minimum 50% of the net offer of securities to thepublic shall initially be made available for theallotment to retail individual investors as the casemay be .2.the balance net offer of securities to the public shallbe made available for allotment to:a) individual applicants other than retail individualinvestorsb) other investors including corporate bodies/institutions , irrespective of the number of shares,debentures and so on , applied for .
3. The unsubscribed portion of the net offer to any oneof the categories may be made available for allotmentto applicants in the other category, if so required